Why I think LTAT need to SELL Affin Bank.

The Reasons I Believe Sarawak Will Trigger Mandatory General Offer (MGO) in Affin Bank

Publish date: Wed, 14 Feb 2024, 08:37 PM

Affin Bank Berhad (ABB) is a licensed bank and a listed company. It has to comply with the provisions in Financial Services Act 2013 (FSA) and Capital Market Service Act 2007 (CMSA). Any proposed deal of multiple 5% interest in a licensed bank requires consent from Bank Negara Malaysia (BNM). The rationale for this requirement is that banks are a strategically important sector of the economy. Under the FSA, a licensed bank can be taken over by institution shareholders with the approval of the Minister, on the recommendation from BNM. 

On 8th Jan 2024, ABB announced that Lembaga Tabung Angkatan Tentera (LTAT) has informed ABB that they are in discussions with the Sarawak State Financial Secretary for possible transaction of additional shares in ABB. Sarawak Premier confirmed in a press conference on 30th Jan 2024 that Sarawak will acquire more shares in ABB with Tan Sri Abang Johari's own words “we are more or less conclusive in terms of our discussions with LTAT

Ever since, Tan Sri Abang Johari has mentioned Sarawak's aspiration to acquire a significant stake in Affin Bank in his public speeches on many occasions.

On 5th Feb 2024 : “as I have mentioned earlier in Kuala Lumpur that we have an interest in Affin Bank and the discussions have been conclusive. Just a matter of formality from Bank Negara Malaysia. We are going to be the block shareholder. It’s the maximum allowable by Bank Negara, block share.” 

“..kita akan mempunyai bank komersial sendiri pada suatu masa bulan ini apabila kita akan mengambil alih sebuah bank komersial di mana majoriti blok sahamnya akan dimiliki oleh rakyat Sarawak..Dan selepas itu kita ada bank kita sendiri..” di Majlis Konvokesyen Pusat Kecemerlangan Teknologi Sarawak.

On 9th Feb 2024 : "Thirdly, we also aspire to have a major stake in a commercial bank to provide Sarawak a financial platform to boost the economy further through the development of SMEs and entrepreneurship. Sarawak already has some stakes in this particular bank and we want to increase our stake. I am confident that we can conclude the negotiations soon so that we can participate actively in the running of the bank and be able to serve Sarawak’s interest well." 

On 13th Feb 2024 :  "Sarawak has had difficulty obtaining loans from peninsular banks, as our local banks were absorbed by larger institutions”. Negotiations to acquire a significant stake in Affin Bank are nearing completion, with the Premier expressing optimism about Sarawak's imminent ownership of its own bank. "Maybe in one or two months, we will have our own bank"

To say you “own a bank”, “majority stake”, "maximum block share allowable by BNM” , these words, in my opinion, mean a shareholding of minimum 50%. If not, how is Sarawak supposed to “participate actively in the running of the bank and be able to serve Sarawak’s interest” or be considered as “our own bank (bank kita sendiri)”. Sarawak need to buy-out Bank of East Asia (BEA)’s 24% shareholding stake as well because BEA had an agreement with ABB that BEA would get 2 nominee directors when they invested in ABB in 2007. BNM Corporate Governance policy document states that the board must have a majority of independent directors at all times. There must be a clear separation between the board and the management. ABB currently has a total 11 directors (8 independent directors and 3 non-independent directors). 

I have listened to the Sarawak Premier’s speeches many times. The Sarawak Premier repeated the state’s ambitions to “takeover” of three strategic entities to complete the state economic ecosystem implies a TAKE-OVER of controlling stake; or in the eyes of Malaysia Takeover code, having to comply with the compulsory acquisition provision. 

If Sarawak and its persons acting in concert (PAC) raised its stake to more than 33% voting shares, it would trigger the mandatory offer obligation. Under CMSA interpretation of PAC, I think LTAT and Boustead Holdings (BHB) will be construed as PAC if Sarawak pursuant to an agreement, arrangement or understanding with LTAT and BHB to acquire shares for the purpose of obtaining control of ABB whether jointly or severally

The key word here is the “PERSONS ACTING IN CONCERT (PAC)”. Our law’s definition of PAC is very broad. This definition has implications in relation to mandatory general offer. If one or more persons in a group of PAC acquire voting shares as a result of which the group in the aggregate would pass the 33% threshold, the members of the group will have a joint obligation to carry out a mandatory general offer (MGO), even though the individual member do not pass the 33% threshold. The law aims to ensure equal treatment of shareholders and in particular the protection of minority shareholders by requiring that mandatory offers apply to all shareholders.

Therefore, I think Sarawak and its PAC will extend a mandatory general offer to all ABB shareholders. I also believe the government will uphold the integrity and the principle of fairness imbued in our capital market. Any proposed deal would not prejudice the interest of the other remaining shareholders. 

Under FSA, BNM may approve an application with conditions to Sarawak (example : Sarawak is required to reduce its holdings to XX % in YY years after the MGO; just like what BNM imposed on EPF in its acquisition in RHB previously). I think this is what the Sarawak Premier meant by the maximum block share allowable by BNM. 

Below are examples of institution or state-owned enterprise shareholding in other local banks. 

  • EPF made a privatization offer to takeover RHB in 2007. One just has to study the takeover case of RHB by EPF in 2007 to understand that takeover of a bank by institutional investors is possible. 

  • EPF held 65% stake in MBSB 

  • Bank Muamalat Malaysia is 70% owned by DRB Hicom and 30% by Khazanah. 

Even if LTAT and BHB do not wish to divest ABB for whatever reason, I think Sarawak can make a general offer to BEA and minority shareholders. No one can stop Sarawak’s aspiration to “own a commercial bank”. Gabungan Parti Sarawak (GPS) is considered the kingmaker of Malaysia’s unity government. The state's revenue for 2023 was RM13.3 billion and is expected to grow. The Sarawak government has set up Sarawak Sovereign Wealth Fund (SSWF) on 1 Jan 2024 with MYR8 billion for investment.  “We are able to set up the SSWF because Sarawak has a strong economy and our revenue continues to rise to record figures. Last year, Sarawak’s revenue stood at RM13.3 billion and I believe it will continue to rise next year, and in the years ahead...”

Sarawak has the cash and the power. It has the appetite and ability to "swallow" Affin Bank.

- A minority shareholder of Affin Bank.


Disclaimer : In the interest of full disclosure and transparency, I hold a vested interest in Affin Bank Berhad (ABB). The opinion and content above is based on my personal analysis and assessment, and it does not constitute investment advice and is NOT intended to encourage or promote the purchase of Affin Bank securities and financial instruments or derivatives. The opinion presented above is for informational purposes only.

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SARAWAK should pay a premium to own AFFIN Bank

Created by beluga | Feb 21, 2024

For majority block shareholding or controlling stake, Sarawak should offer a premium to all Affin Bank shareholders. It will boost investors confidence in our capital market.

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